Consumer skepticism holds back local online commerce

Newsroom 11/09/2007 | 15:33

The value of the local online shopping market was about EUR 60 million in 2006 and is expected to increase by around 50 percent in 2007, Madalin Matica, European operations manager of DotCommerce, said. The estimate refers to the online credit card payment system which registered between EUR 10 to 16 million, as well as to other payment methods in advance or at delivery.
These figures are small compared to the European market, but EU accession should generate positive changes on the local market, said Carmen Sebe, CEO of Gecad ePayment. In her opinion, the most active segment in the local e-commerce in 2006 was tourism. To keep up with the European competition the local online shops should now make long term investments in management and logistics. If the stock of products is not complete or if the delivery isn't made on time, the companies will be punished by customers. In the EU all online companies work with international renowned logistic firms like DHL, UPS and FedEx which could act as an example for Romanian e-retailers.
The local market is still facing trust issues in relation to foreign buyers. Liana Bandula from, which targets the international market selling traditional Romanian products, says that foreign clients visit the online shop, open an account, choose products, but give up when it comes to the online payment procedures.
One of the obstacles to this business is public skepticism because products cannot be seen before purchase and about electronic payment, adding that trying to change the rigid attitude of local customers towards e-commerce should be the main target of the development process of this business.
The investment needed for such a shop varies from EUR 350 to thousands of euros, from one entrepreneur to another and depending on the field of activity. The technical spending involves the design creation, applications on the shop's website, as well as on a digital security certificate, web hosting expenses, the implementation of an online payment system and paying the transportation costs of the first orders. Beside that, money should also be put in an advertising campaign, a market study and in a marketing plan. Despite these investments, the highest sums will be put in the first stock of products.
The delivery is usually made within several hours to a few days, and transportation costs are borne by the shop or the customer. Among the advantages that e-commerce has over physical purchasing are that customers cannot spoil a shop's products without paying for them, sales are easier to control and products cannot be stolen from the shelves.
In Matica's opinion many international companies are interested in making a grand entrance on the local e-commerce market, attracted by seven million internet users.
“In the first half of 2007 we will see several spectacular acquisitions,” said Matica. The value of these transactions should be from millions of dollars for successful web service providers to tens of millions for the card payment processing companies.
DotCommerce itself received offers in the last three years from investment funds and the last period added another zero to the value of the company.
Sebe, on the other hand, does not believe that big international names in e-commerce will rush in to enter the local market this year. The smaller companies are expected to enter first. Larger companies may appear when a clear and stable legislative environment is in place and the volume of online transactions through credit cards reaches 50 percent of the value of the local online shopping volume.
In her opinion the most attractive local businesses for international players in this field will be digital mall-type shops, with less importance given to niche shops. Usually, these companies are bought first by the investment funds, which estimate the potential of a business from its early stages and afterwards are sold to specialized companies.
The value of an online company is not just in its profit. The power of the brand, the traffic penetration rate and loyalty of its users are more important. On the international scene, Google bought YouTube for $3 billion despite the company having huge operational losses.
Compared with its international counterparts, the local market lags behind on education regarding credit card payment processes, as many people use their cards only to withdraw money from an ATM.

Roxana Mihul

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